By Hilary Mare
LOCAL economic watchers have broadly given their thumbs up to South Africa’s local government elections outcome last week saying that there are upside opportunities for Namibia’s GDP growth owing to positive all round reaction to the results.
Namene Kalili, research manager for strategic marketing and communications at FNB expressed that the rand (ZAR) strength should reduce Namibia’s import bill in the medium term from last year’s N$95 billion, narrowing the trade deficit at a faster pace than we had originally anticipated and therefore providing additional upside opportunities to GDP growth.
“We expect the domestic economy to grow by 3.1 percent in 2016 and a further 4.5 percent in 2017. Should the rand continue to strengthen, we would revise our growth expectations upwards in line with the rand recovery,” he said.
He further stated that international investors have gained a bit more confidence in the democratic processes in South Africa, resulting in the continued capital inflows into the South African economy.
“The rand, to which the Namibian Dollar is linked, strengthened as the election results trickled in, breaking below the psychological 14 level to the dollar. It also gained against the sterling and the euro following the BoE’s decision to cut rates and institute more stimuli to alleviate the impact of Brexit.
“The local unit opened at 13.71 against the greenback, at 15.23 and 17.94 against the euro and pound sterling. The bias is still for some gains as the global search for yield continues. Remember that USD/ ZAR’s fair value is between 11.50 and 12.50 according to our models, thus the continued strength of the unit is not inconceivable,” he added.
Fierce competition characterised this year’s elections as the ruling ANC suffered its worst elections result since the dawn of democracy in 1994.
Voters’ support for the ANC across South Africa fell from 61.9 percent in 2011 to 53.91 percent this year, according to IEC data.
Major cities proved to be the ANC’s biggest headache in this year’s vote as the DA won the lion’s share of votes in Nelson Mandela Bay (46.71 percent) and Tshwane (43.11 percent).
“However, the crucial decider will be whether South Africa is downgraded at the end of the year, which we still believe to be the case with some conviction, then we can expect the rand to weaken. The Feds next interest rate decision would also impact the rand, given that we believe we have reached the end of the interest rate hiking cycle. Should the Fed hike, expect the rand to weaken against the major currencies. But, it is still early days and there are numerous upside and downside risks to impacting a firm view,” Kalili further explained.
Purvance Heuer, director of research and securities at Simonis Storm Securities said: “The SA local elections impact on Namibia is more indirect than direct. The rand has reacted positively to the election results. This may be because investor confidence has improved due to confidence in the democratic process in the SA. At the same time the USD has also depreciated due to withering expectations for rate hikes in the US. We believe that the rand will continue to strengthen albeit at a slower pace in the coming months, but continue to expect Rand weakness in the long run. Forward rates are suggesting the rand to weaken by about 44 percent over the next five years.
The weak global economic backdrop, widening current account deficit, purchasing power parity and a rigid labour market remain headwinds for the SA economy. Therefore we continue to see rising inflation, lower economic output and low interest rates. This will therefore continue to be the case for Namibia as monetary policy closely follows that of SA. In Namibia however we see fiscal stimulus making up the difference in economic output. SARB expects the SA economy to grow by 0.0 percent in 2016 with the IMF is projecting 0.1 percent. In Namibia BoN is projecting 4.4 percent and Simonis Storm is forecasting 4.1 percent. This growth will mostly come from the mining sector and Government spending”.
Meanwhile, global credit ratings agencies proffered mixed views on South Africa’s 2016 local government elections. Moody’s – which earlier this year affirmed South Africa’s ratings at Baa2/P-2 and assigned a negative outlook – is upbeat about the country’s local vote and its possible economic impact.
However, Fitch had a more sombre view as it rang a warning bell over possible populist policies. “The pronounced drop in support for South Africa’s ruling African National Congress in the nationwide municipal elections on 3 August increases the risk of more populist government policies,” Fitch Ratings said.
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